Concepts The REDD Carbon Market Structure

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3.4.1 Concepts

3.4.1.1 What is the basis for the carbon market? Carbon markets operate in a similar way to those for any other traded commodity, but with two important differences: the intangible nature of the commodity, and the important role of regulation. n carbon markets the commodity being traded is usually a tonne of carbon, but, being invisible, it is hard to track and measure, giving rise to complex technical processes and high risks. t is therefore very important that the seller is able to cultivate trust among potential buyers through consistent demonstration of good governance. nternational public regulation has played an extremely important role in creating carbon as a commodity, and in driving demand in the markets, particularly since when the Kyoto Protocol, which sets mandatory emission reduction targets for Annex developed countries, came into force. There are two main markets for trading carbon: the compliance market and the voluntary market see Table 13 for a comparison of their main features: . The compliance market consists of three different trading mechanisms operating under the globally agreed rules of the Kyoto Protocol. They include a. Emissions Trading, b. Joint mplementation J ; and c. Clean Development mechanism CDM . Only the CDM, in which Annex countries can claim credits from projects which reduce levels of greenhouse gases in non-Annex developing countries, offers potential benefits for developing countries from carbon finance. The value of the CDM market was US . billion Rp . trillion in and it is growing rapidly. owever, less than one percent of the CDM trade is related to afforestation and reforestation. . The voluntary carbon market are smaller markets operating outside internationally agreed rules. They consist of voluntary allowance markets where companies take on voluntary emissions targets and trade their allowances ; and project-based crediting mechanisms similar to the CDM. ndividuals, corporations and other organizations without mandatory emission targets may enter into these markets, driven by social responsibility concerns to reduce emissions. The value of the voluntary carbon market was estimated at US million Rp billion in and is expected to have doubled in size during . The types of projects that can generate credits include emissions reduction projects e.g. renewable energy or energy efficiency projects and carbon sequestration projects e.g. afforestation and reforestation and carbon capture and storage projects. 56 A key difference between the compliance and voluntary markets is that the only forestry projects currently allowed in the compliance markets are concerned with afforestation and reforestation projects. Voluntary markets already allow REDD projects and a number are already in development in ndonesia. One reason Voluntary Carbon Markets have adapted quickly to the proposals which REDD proponents have put to them is the importance of demonstrable good governance. Because trading in REDD carbon credits is targeted at buyers characteristically concerned with environmental ethics and social responsibility, there is an incentive for the sellers to ensure good governance practices can be guaranteed. While this may be possible in small to medium size projects the concern for good governance could conversely work against the expansion of VER instruments and their up-scaling from relatively small projects to national or sub- national strategic initiatives where independent and respected rules of compliance will need to be followed to regulate risk to buyers and sellers. When a REDD Compliance regime is introduced it is likely that the voluntary market will cease to expand and may retract as it will be attractive only to specialized proposals. Nevertheless, voluntary markets will probably continue to play a role as they will continue to offer flexible solutions to smaller community based projects, or those targeting biofuels. The unique qualities of bamboo in sequestering and storing carbon also mean that projects involving bamboo may also find an important pathway to carbon trading through the voluntary markets. This flexibility may be particularly important to ndonesia where the complexity of social organisation and regulation, while an impediment to large scale regulation offer opportunities for locally packaged projects. Table 13. Main features of Kyoto and voluntary markets Kyoto CDM Voluntary Size in 2006 . billion Euros million Commodity CO eq equal to one ton of carbon Normally CO eq equal to one ton of carbon Legal framework Regulated under Kyoto Protocol Unregulated Buyers • Developed country governments, regulated private sector or individuals • Primary motivation is regulation • Anyone, but normally unregulated private sector or individuals • Primary motivation is social responsibility, profit or preparation for regulation Sellers • Project developers in developing countries • Often larger projects with few links to communities • Project developers in developed or developing countries • Often smaller projects with more links to communities 57 Kyoto CDM Voluntary Forestry projects receiving credit Afforestation and reforestation Afforestation, reforestation and reduced deforestation Monitoring, reporting, verification and reporting processes • stage CDM project cycle • Third party verifiers • Variable project design processes • Third party verifiers often required Transactions in both the compliance and voluntary markets take place between sellers who produce carbon credits through emissions reduction or sequestration projects; and buyers of credits who use credits to meet regulatory or voluntary commitments. This usually occurs via intermediary organizations such as brokers or secondary buyers e.g. traders and funds that buy for others and take on some of the risks as the transactions can be difficult for buyers to manage themselves. Surrounding these transactions is a range of institutions which facilitate trading. For example, in the compliance market, the EU Emissions Trading Scheme EUETS has been established to allow trading of carbon between industries in the EU. The Chicago Climate Exchange is a similar voluntary trading platform set up in the United States. Other institutions and processes have been established to reduce risks associated with the markets and projects. These include third party verification organizations that verify credit quality, registries for tracking movements of credits and expert review processes for checking the quality of reporting. Standardized project development cycles, such as the -stage CDM project cycle, have also been developed to improve project design and the quality of credits. 3.4.1.2 How might the international REDD markets develop? There are a number of options for the future of the REDD carbon market depending on the type of international agreement that is reached and the design of REDD systems by national governments Figure . The main factors which influence these possible forms include: . Whether a negotiated agreement is reached at the international level. Agreement would result in either a compliance-based system operating under international rules. No agreement would result in REDD projects being established in a voluntary market-based system with no international rules; . Whether the financial mechanism is market or fund-based. Market based mechanisms would involve the trading of carbon credits within international carbon markets. Fund-based systems would rely on payments from multilateral funds, similar to current Overseas Development Assistance ODA ; . Whether the credits in any market-based system are fungible transferable with other credits in the carbon markets, or traded in a system under a separate protocol. f they are fungible, then credits for REDD would be tradable within 58 markets for credits that include energy and energy efficiency projects. f they are traded under a separate protocol then a new market only containing REDD credits would be established; . Whether incentive payments are made to national governments, or to entities at sub-national levels e.g. lower government levels, unit management levels or projects ; and . The reference scenario used for measuring progress and making incentive payments. Three of the most likely possible combinations of these options and their characteristics are compared in Table . Table 14. Characteristics of the three REDD market mechanisms Characteristics National Carbon Credit Market Mechanism to comply with the Emission Reduction Target following the Kyoto I Commitment, Compliance Market Voluntary carbon market REDD incentives Fund Based-REDD Incentive Scale Possibility of generating large revenue streams of - billion USD per year in ndonesia, depending on assumptions used Much smaller scale than compliance system. The value of voluntary carbon markets is currently about . of the overall value of global carbon markets Scale unclear but likely to be much less than the market-based compliance option Prices The price of a carbon credit will follow market demand, determined partly by the size of post- Kyoto commitments. Prices are likely to be higher than in voluntary markets. Prices likely to be low compared to compliance system. The total of the fund to be provided for REDD is likely to be relatively small compared to those available in market mechanisms. Payment timing Payments likely after emissions reductions have been verified to reduce risk Buyers more likely to take on risk that credits will not occur and make up-front payments Both ex-ante and ex-post payments possible 59 Basis for payment The size of the incentive provided will be based on the size of the emission reduction compared to the nationalsub-national reference emissions The size of the investment will be based upon the extent of the emission achieved compared to the reference emission level and commitment of the project. The size of the fund to be provided will depend upon agreement, likely to be based on the size of the emission reduction from the reference emission level or on other considerations not directly related to carbon, such as conservation of biodiversity Standards and regulations Standards and regulations will be binding at the international level with a system of high accountability so as to maximise the value of the payment transactions and ensure comparability of credits across the market. Standards and regulations likely to be less strict and rules more flexible between projects. As regulatory pressure in Annex- countries is not the main driver of the market, social and environmental co-benefits could be important motivations for implementing projects. Standards and regulations likely to be less strict than for market based mechanisms as there is less need for comparability of emissions reductions units and funds are designed to provide assistance to the country receiving the fund. Central government involvement The level of government involvement in the system is likely to be high, with the government acting simultaneously as a seller of credits to international buyers, a buyer of emissions reductions from sub-national schemes, a regulator of the system andor an intermediary Likely to be less than in a compliance system because transactions are more likely to be between international buyers and projects, rather than with national governments as sellers themselves. This could avoid capture of the system and finances by higher levels of government but could also result in implementation of activities that are not in accordance with government objectives. Level of government involvement is likely to be high. The government will receive funds from international donors and redistribute these through existing or dedicated REDD funding mechanisms Commencement of system Activities likely to commence in but there is scope for early action to reduce emissions to be rewarded Activities will be able to commence immediately because they are not dependent on international negotiations Activities likely to commence in but there is scope for early action to reduce emissions to be rewarded 60 Liability n forward contracts for the purchase of credits the central government is likely to take on some liability for non-delivery, although this may be transferred to other actors at sub-national levels depending on the way the system is set up. n forward contracts for the purchase of credits the project developer is likely to take on liability for non- delivery, although this could be transferred to other stakeholders in the project through contractual agreements Central government likely to be liable for non- delivery of emissions reductions, although this may be transferred to other actors at sub- national levels. Less stringent standards and regulations relating to funds mean that liability will in general be lower than for market mechanisms. From a buyers perspective the future market structure that will have the most influence on behaviour will depend on which of the following four options develops. . A National crediting scheme under a UNFCCC agreement. This scenario assumes the establishment of a national reference baseline for emissions from deforestation. Any verifiable reduction during the crediting period would result in REDD carbon credits issued to the host country s central government. These REDD credits could be fungible with credits generated through other abatement measures. Separate markets could be established by agreeing on specific REDD targets to be met through credit purchases by developed countries in a separate Protocol to the UNFCCC in addition to a Kyoto-post- successor; or by agreeing on REDD and non-REDD targets within the same Protocol. All options would realistically be restricted to mandatory targets for industrialized countries with developing countries providing REDD credits on a voluntary basis. National-level REDD crediting would represent a voluntary sectoral crediting approach which is starting to be discussed also in other policy areas of the UNFCCC process. An agreement involving national-level crediting need not be incompatible with the option of project-level crediting. . Project crediting scheme under a UNFCCC agreement. This scenario, like option , would allow tradable carbon credits for REDD to be issued in developing countries. owever, the level of carbon accounting and crediting would be a sub-national project rather than an entire country. This key difference makes this scenario similar to existing CDM projects, where project-specific baselines have to be established against which emission reductions are measured. n the case of REDD, national baselines might still function as the reference scenario even for project-based crediting, or at least be taken into account for project-specific baselines. Sub-national administrative units, such as Districts in the case of ndonesia, could become de facto project proponents and generate REDD credits from the forests under their jurisdiction. Again, REDD credits may or may not be fungible with other segments of the regulatory carbon market. An agreement involving project- 61 level crediting need not be incompatible with the option of national-level crediting. . International fund with national-level incentives. The key difference in this scenario is that incentive payments for REDD would come from a dedicated international fund rather than from carbon markets. Such a fund would on voluntary contributions by governments or other donors. Financial incentives from the fund could be calculated in a similar way as to that used for market- based options. A fund could provide incentives on a national or project level basis, although payments to national governments are the more likely policy scenario. ncentives and payments from a fund could also be based on measures or commitments that are not quantifiable in terms of the emission reductions they achieve e.g. policy reforms and implementation . The scale of payments would depend on available donor funds with carbon prices and overall capital flows determined by the supply and demand for credits by governmental and private actors. . Voluntary markets only without international agreement. Voluntary markets for REDD already exist and can be expected to grow in the future along with other generally expanding voluntary markets. Credit-based incentives from these markets could be the main remaining source of REDD funding if no international agreement can be reached. This option would focus on project-based crediting. Voluntary markets could also be tapped by projects even if a regulatory REDD market is created. Voluntary markets are a fall-back option for the international REDD process, as well as an ongoing complementary source of carbon finance. n general, a market and credit-based international policy scenario can be expected to put greater emphasis on outcome-based incentives issuing credits after emission reductions from REDD have been achieved and verified; whereas an international fund could be more flexible in providing upfront ex-ante payments. This has implications for the scope national governments have to provide upfront ex ante incentives. Estimating the future value of market-based REDD systems is subject to assumptions about possible market architecture and factors which govern demand for credits, volumes and prices. t is therefore impossible to be definitive at this stage. n the compliance market the variables that will influence market value include: . The stringency of future Annex- country emissions targets which will drive demand for emissions reductions credits; . The number of countries adopting reduction targets e.g. whether the USA joins ; . Level of achievement of the st CP emission reduction target; and . CDM performance in other sectors which could determine how attractive REDD credits are in comparison; 62 . Caps on the use of REDD credits, which might be put in place to reduce the risk of the market being flooded with cheap credits; . Whether it is allowance-based or project-based Mechanism Incentive allocationlevel International agreement reached No agreement reached Post- Protocol additional REDD Protocol UNFCCC nternational Fund no carbon credits National Project like CDM National Voluntary Markets Further options selection issues • Calculationofreferencescenario istorical baseline, modelling, negotiated, hybrid • Netforestcarbonchangesordeforestationonly? Does reforestation count? • Emissionsourcescovered deforestation, degradation, peatlands,… • Earlycrediting of reductions achieved before ? • Typeofcredits temporary or permanent 1Nationalincentivescheme Validityof credits Fungible across markets Separate REDD markets Fungible across markets Separate REDD markets Project Voluntary markets only No carbon credits National Project 2Directincentives scheme 3Nationalincentive scheme 4Directincentives scheme Figure 15. Design of a REDD Market 63 3.4.1.3 What role will the buyers play in the development of the market? The attractiveness of ndonesia s REDD credits to buyers will largely determine its share of the projected - billion REDD market. The extent of forest in ndonesia and its history of forest loss contribute to the very high potential for the country to gain from the REDD market. The country loses some , hectares of natural forests per year see Table . By conservative estimates, this represents some million tonnes in annual CO emissions. Buyers, whether governments, financial institutions or private sector purchasers, will seek out REDD projects that guarantee credible emission reductions while minimizing the risks and costs of creating them. n this respect, the REDD market will be a competitive one resembling those for other global commodities. REDD credits, however, are also a performance-based commodity. The product – a ton of greenhouse gas emission reductions -- represents a real change to forest carbon stocks maintained above a negotiated baseline. This depends on credible governance and a strong regulatory framework to mediate transactions, reduce transaction costs and assure buyers of quality emission reductions balancing risks and returns. With its natural endowment of forests, ndonesia can be in a competitive position by establishing a REDD carbon credit production process credible to international buyers. The government s most effective role will be as an efficient regulator of a REDD policy designed to contain rent-sinking, minimize transaction costs and encourage private investment into the sectors capable of achieving the greatest emissions reductions while meeting national sustainable development goals. n order to achieve these objectives ndonesian regulatory agencies will need to demonstrate sensitivity to the structure and demands of international private or government carbon buyers. Three basic players operate in the carbon markets: . End-users that apply carbon credits to offset their own emission reduction goals, . Generators of carbon credits from projects; and . Their intermediaries. Buyers may also be users, carbon funds including carbon facilities , or traders. Brokers may act as intermediaries between providers and all types of buyers. Buyers for carbon-credit products can be categorized as shown in Figure . 64 Figure 16. A classification of carbon credit buyers Buyers consider many factors when purchasing carbon credits, but will focus their attention on three main issues: . Credit quality relates to risk but also includes factors such as the monitoring Methods, and the potential for projects to deliver social and environmental benefits. . Cost of credits are related directly to the operational costs of implementing monitoring and maintaining projects, as well as transaction costs from factors such as trading credits and rent-seeking activities. . Risks primarily diverge into: a. project risks linked to investment returns and credit price; b. political risks involving country-specific governance issues; c. market risks linked to fluctuations in demand and supply, and d. regulation and structure of REDD design issues such as permanence and leakage. Credit Quality is determined by how well a project creates real and verifiable net emission reductions that extend benefits across a spectrum of socio-economic and environmental factors. The exact criteria will evolve through market preference and guidelines established under international agreement. Although criteria developed through project activities conducted under the Kyoto Protocol, or the voluntary market, will inform this process, it is likely that quality will be defined by specific issues of permanence, leakage, additionality, liability, transparency and co-benefits that are collectively validated and verified by third-party auditors. The issues of permanence, leakage and additionality are governed by technical aspects and have been defined earlier. ssues of liability, transparency and the concept of co-benefits are issues of governance, and international experience 65 indicates that the perception of buyers of a country s performance in these areas is very important in setting the quality of the traded carbon. The question of who has liability when losses occur after the credit has been sold is one of the main issues that need to be contractually fixed between seller and buyer. There are several types of contracts that allow for different liability assumptions where the buyer, seller or a third party is financially responsible for delivery risk of the carbon credits. Remedies in this process include: . replacing undelivered carbon credits with those from other projects, . seeking damages, . mandating extra production of carbon credits in a later period or ending the contract; and . claiming advance payment from the seller or third party. National credit pools, government guarantees or insurance instruments may play a role here. Transparency in the creation and management of REDD projects will profoundly influence how investors regard the risk profile of projects. The REDD payments should be fully transparent and managed according to international financial standards and ndonesian law. Monitoring, auditing, and exposure to public scrutiny and control should be handled by independent bodies, including civil society organizations. Credits emanating from REDD emission reduction at a national scale will be valued more if they also produce environmental and social co-benefits. Small and large land holders, agricultural and forest communities, and national and local government can all benefit from the revenue that REDD generates. Environmental services of standing forests including water flow management, biodiversity, carbon storage and marketable products also accrue to local stakeholders as well as the general public. One of the objectives for REDD projects will be to identify and develop these benefits as incentives for REDD activities. These can make projects and the credits associated with them easier to sell to certain buyers, especially in the voluntary markets where demand is often driven by ethics and corporate social responsibility concerns, rather than regulatory pressure f ndonesia is able to demonstrate a commitment to improve the social conditions of its poor through, for example implementing sustained forest management to deliver financial and ecological benefits to local communities and private firms from the county s forests; the effort could be expected to resonate among many of the emerging major buyers. Almost all international buyers demand independent certification against credible standards during carbon project development and operation. This is intended to ensure that quality standards are met and evaluated consistently over the lifetime of the project. t is likely that REDD projects will rely on a similar mechanism to guarantee quality and lower the risk of failure due to non-compliance with REDD protocols. Standards and labeling systems help to ensure buyers of social and 66 environmental co-benefits , and enforce systems in place to guarantee emissions reductions have occurred. Similarly, the existence of a national or international registry will be critical to guard against double-counting selling the same credit twice and guaranteeing the integrity of the system. Cost of Credits . Buyers of REDD projects will gravitate toward least-cost options that balance reasonable levels of risks and return. This suggests investment will flow toward REDD opportunities that target projects with low-opportunity costs, large volumes of credits to take advantage of economies of scale and portfolio strategies that minimize risk. While the costs per ton of REDD credits and the payment structure upfront payment or floating prices, delivery or purchase guarantees are still unknown, data for existing compliance market prices of forestry projects suggests a price of about to per ton of CO e for REDD transactions. On the voluntary market, forestry carbon credit prices cover a wide range from around US . to per ton. owever, the primary determinants of price for REDD credits will be the structure of a compliance REDD market affecting demand, as well as costs that project developers must incur to produce credits. Future price discovery will rely on more transactions that accurately reflect the true cost of REDD implementation in various countries. Carbon credit buyers will prefer low-risk projects that ensure timely performance, as well as sustained delivery and permanence of high-quality emission reductions. REDD projects are exposed to risks inherent to any normal forestry project related to project financing or implementation issues, as well as certain carbon- specific risks. Existing carbon markets have shown that higher risks often do not prohibit the development of carbon projects, but that they can significantly influence the prices paid for the credits. Risk. There are three different forms of risk involving carbon projects: market risk, operating risk and political risk. Market risk stems from the potential for prices to be lower than expected due to lower demand or increased supply from competitors or substitutes. Market risks can be managed by buyers by entering into long term purchase agreements with sellers or third-parties allowing the balance of risk to be adjusted. Operating risk stems from project performance and would increase if the cost of operation and maintenance is higher than expected. This risk can be managed through careful execution of planning, construction and operation, as well as agreements between the buyer and seller over performance requirements, financial penalties or corrective measures, and use of insurance. Forestry projects are also vulnerable to risks due to natural causes, market fluctuations and underlying factors such as governance. From the perspective of buyers, low risk profiles are attained through due diligence reporting of funding, land tenure security, assessment of country risks and clear business plans. Mechanisms to compensate for project failure such as insurance schemes or credit reserves may 67 also be required. Figure provides an analysis of project operating risks on carbon prices. Political risk involves country-specific governance issues and the negotiated structure of a future REDD compliance market. Political risk exists at the local, national and international scale, and the level of this risk will be critical to the success of any market in the future. Private sector involvement in the REDD market from the buyers perspective demands sustained market confidence that national actors, and their sub-national parties, deliver real reductions in deforestation within a credible framework. Existing experience with regulatory, fund and market-based forest management in ndonesia indicate that performance will have to improve significantly for REDD to work. There are also forms of risk specific to carbon markets. Permanence and leakage are particularly important in forestry projects. As discussed above, permanence relates to the question of how to ensure that carbon stored in trees is removed permanently from the atmosphere and it can be managed by issuing temporary credits for forestry projects. Leakage relates to the question of how to ensure that a project that avoids cutting trees in one area does not lead to trees being cut in another area. The project cycle for CDM projects is illustrative in this regard as it shows the impact of different risks on the price of a CER during the carbon project development phase. Political risk poses a relatively large risk in this market. Registration Impact on Price Risk Risk adjusted price per CER Post-Kyoto Market Transfer Review of issuance Verification Monitoring Performance Validation Host country approval Methodology Counterparty Country political Risk free price per CER Registration Impact on Price Risk Risk adjusted price per CER Post-Kyoto Market Transfer Review of issuance Verification Monitoring Performance Validation Host country approval Methodology Counterparty Country political Risk free price per CER Figure 17. mpact of project-cycle related risks on carbon prices 68 3.4.1.4 What are the financial and risk issues for sellers of carbon? The way carbon projects are set up around the interests of Annex buyers raises a set of financial and risk issues for the sellers of carbon credits. Similar issues are likely to be relevant in future REDD systems whether the sellers are national governments, or sub-national governments or other actors. Financial issues relate to transaction costs, project size and the timing of payments, implementation costs, proportion of finances generated from carbon sales, and the availability of up-front capital. Small projects have similar transaction costs to large projects, so that there is an issue of a size threshold influencing the economic feasibility of a REDD project. Transaction costs are largely up-front expenses, which can be a problem for small producers. These costs can be reduced through small-scale methodologies such as bundling of projects or implementing programs of activities commonly called programmatic CDM . Options for up-front financing in the project planning phase include government tenders and carbon funds, funds from private sector CDM project developers, and funds from the project hosts. mplementation costs are not well known for REDD, but include measures for lower deforestation, rule enforcement and monitoring. These costs are likely to be significantly affected by external factors such as demographic changes, immigration and conflicts over land. Carbon finance is generally a small part of CDM projects, meaning that projects have to be financially viable without carbon finance. f this is the case in REDD such financing might need be raised through ecotourism, the sale of non-timber forest products or timber produced through sustainable forest management, through bundling with other ecosystem service payments, andor with co-funding from national revenues, or international funds similar to those listed for provision of upfront financing. Given the high risks related to forestry carbon projects and the financial constraints, carbon contracts are essential for both buyers and sellers. From the seller s perspective it is particularly important to ensure that they are not bound into an agreement in which they could lose money, or be liable for project failure that is out of their control. n existing carbon markets four main aspects of contracts are important for sellers: ] Program of Activity PoA is a voluntary coordinated action coordinated or managed by entity, which implements a national policymeasure or stated goal, which leads to GG emission reductions or increase net greenhouse gas removals by sinks that are additional to any that would occur in the absence of the PoA, via an unlimited number of program activities. While Program activity is a project activity under a PoA 69 . The specifications of volume and time frame of delivery. Given the uncertain quantity of carbon credits the seller needs to ensure flexibility as to the volume and time frame for delivering credits. . Payment schedule. Sellers will want to ensure that some proportion of payment is made upfront. . Price setting. The seller will want to ensure that they get a good price for their credits. The contract could establish a fixed price for each carbon credit, but there is a risk that the seller could lose out if the market price for credits rises over time, in which case they might opt for and indexed price option; . Liabilities. The seller will need to ensure that they can meet liability rules if they fail to deliver credits, which might include payment of damages to buyers or replacement of credits. They will also need to establish rules for compensation from buyers if they do not pay, for example through charging interest or claiming damages. The contractual arrangements between buyers and sellers in national REDD systems whether they are upstream between international buyers and national governments, downstream between national governments and sub-national entities, or between international buyers and projects will be important to consider to ensure that sellers of credits are not disadvantaged, or subject to large liabilities for failure to deliver emission reductions. Mechanisms to avoid the failure of delivering emission reduction should be developed. When carbon credit from REDD is exchangeable with regional climate mitigation credits e.g. CER, ERU andor VER , then it is logical that the non-Annex countries who committed to implement REDD can also used CER generated from CDM projects to replace the undelivered REDD credit.

3.4.2 The situation in Indonesia